MADRID, 1 Dic. (EUROPA PRESS) –
The European Central Bank (ECB) is confident that most banks will improve their profitability with interest rate rises, although it has warned of the probable deterioration in asset quality in the coming months due to the risk of recession and the energy crisis Therefore, exposure to electro-intensive companies is an area of ”particular attention”, while the rise in rates also points to vulnerabilities in the real estate market.
“Many energy-intensive sectors are at the beginning of the value chain, where disruptions can trigger chain reactions,” Andrea Enria, Chairman of the ECB’s Supervisory Board, warned in his appearance before the European Parliament.
In this sense, the Italian has highlighted that the institution is focusing its attention on credit exposures and derivatives to the main traders of energy raw materials and is analyzing exposures to the public energy services sector (‘utilities’), also closely monitoring the energy derivatives markets.
“Exposures to energy utilities increased by around 14% in the first three quarters of the year, and further extension of credit could bring banks closer to their internal risk limits,” Enria said.
Likewise, the Italian considers that the accelerated normalization of interest rates is highlighting vulnerabilities in sectors such as residential and commercial real estate markets, consumer financing and leveraged financing, which at the aggregate level account for 60% of ordinary level capital. 1 of the banks in the euro area.
“A large part of these are exposures to highly leveraged companies. This is the riskiest category of a high-risk asset class, and banks continue to make loans of this type,” he warned, noting that the ECB will monitor specific.
In this sense, he has pointed out that, although the ECB’s analysis suggests that for most banks “the expected increase in interest rates should improve profitability”, some business models could be affected as rates rise more because the payment capacity of its borrowers is particularly sensitive to the price of money.
Likewise, it has warned that the underlying risks point to a probable deterioration in the quality of the assets in the coming months, despite the decrease in the last quarters of the general non-performing loan ratio (NPL), since the NPLs in the segment of consumer loans and early delinquency, both for households and companies, are increasing.
“We are facing a period of slower growth and possible recession, with great uncertainty about energy supply. While higher interest rates and margins are driving bank profitability right now, they are also affecting the ability to highly leveraged clients to pay off their debt or meet margin calls and can trigger sharp adjustments in volatile financial markets,” Enria summarized.
In this way, the supervisor has urged the sector to prepare for the possible adverse impacts of this uncertain environment on its business, warning that “several banks seem to use relatively moderate macroeconomic assumptions in their adverse scenarios”, which translates into an impact moderate in its capital ratios, so capital planning will be looked at more closely to ensure an appropriate level of conservatism.
